2013 Annual Report

PEABODY ESSEX MUSEUM • CANTON FOOD PANTRY • NEW ENGLAND CENTER FOR HOMELESS VETERANS • QUINCY COMMUNITY ACTION PROGRAM • CAMP PUTNAM VOLUNTEERS IN MEDICINE BERKSHIRES • LEE EDUCATIONAL ENRICHMENT FUND • COMMUNITY ACCESS TO THE ARTS • INDIAN HILL MUSIC & ARTS • CARDINAL CUSHING CENTERS LOAVES & FISHES FOOD PANTRY • AYER-SHIRLEY EDUCATION FOUNDATION • WEYMOUTH FOOD PANTRY • SOUTH SHORE HABITAT FOR HUMANITY • GIRLS INC. QUNSIGAMOND COMMUNITY COLLEGE • NORTH BROOKFIELD YOUTH CENTER • BELIKEBRIT • LITERACY VOLUNTEERS OF GREATER WORCESTER • MARLBOROUGH HOSPITAL HUDSON & MAYNARD ADULT LEARNING CENTER • YMCA OF CENTRAL MASS • ANNA JAQUES HOSPITAL • NEWBURYPORT EDUCATION FOUNDATION • OUR NEIGHBOR’S TABLE MILLBURY BICENTENNIAL • FRIENDS OF THE MILLBURY SENIORS’ MEALS ON WHEELS • MILLBURY DOLLARS FOR SCHOLARS • CIRCLE HEALTH AT LOWELL GENERAL HOSPITAL MERRIMACK REPERTORY THEATRE • MERRIMACK VALLEY HOSPICE HOUSE • WELLSPRING • PATHWAYS FOR CHILDREN • ROCKPORT EDUCATIONAL FOUNDATION PIONEER VALLEY HABITAT FOR HUMANITY • DAIKEN HUMANE SOCIETY • NORTHAMPTON SURVIVAL CENTER • ATHOL AREA YMCA • HOUSE OF PEACE & EDUCATION GREATER GARDNER CHAMBER OF COMMERCE • UNITED WAY OF MASSACHUSETTS BAY AND MERRIMACK VALLEY • CIRCLE HEALTH – LOWELL GENERAL HOSPITAL BOYS AND GIRLS CLUB OF GREATER LOWELL • NORTHERN BERKSHIRE UNITED WAY • WILLIAMSTOWN YOUTH CENTER • ADAMS YOUTH CENTER • CAPE ANN MUSEUM GLOUCESTER EDUCATION FOUNDATION • CAPE ANN SYMPHONY • FALL RIVER CHILDREN’S MUSEUM • YMCA SOUTHCOAST • HEALTHFIRST FAMILY CARE CENTER NORTH ADAMS STEEPLECATS • MASSACHUSETTS COLLEGE OF LIBERAL ARTS • WILLIAMSTOWN YOUTH CENTER • HOUSING CORPORATION OF ARLINGTON COUNCIL OF SOCIAL CONCERN • CAPE COD HEALTHCARE • WINCHESTER ABC PROGRAM • CAPE COD COMMUNITY COLLEGE • ARTS FOUNDATION OF CAPE COD THE FAMILY PANTRY OF CAPE COD • BOLTON 5K RALLY • CLINTON HOSPITAL FOUNDATION • GROWING PLACES GARDEN PROJECT • UNITED WAY OF WEBSTER DUDLEY WORCESTER CENTER FOR PERFORMING ARTS • NICHOLS COLLEGE • UNITED WAY OF PIONEER VALLEY • SOUTH HADLEY PUBLIC LIBRARY • WORCESTER COUNTY FOOD BANK CHICOPEE SENIOR CENTER • HARRINGTON MEMORIAL HOSPITAL - SOUTHBRIDGE • OLD STURBRIDGE VILLAGE • MERRIMACK VALLEY HOSPICE • MERRIMAC LIBRARY MERRIMAC COUNCIL ON AGING • TOWN OF BRIDGEWATER - HOUSING PARTNERSHIP • EAST BRIDGEWATER MUSIC PARENTS • OLD COLONY YMCA • FRIENDS OF SOUTH SHORE HOSPITAL • ATLANTIC SYMPHONY ORCHESTRA • GLASTONBURY ABBEY • WESTPORT HISTORICAL SOCIETY • COMMUNITY FOUNDATION OF SOUTHEASTERN MASS DARTMOUTH YMCA • MOTHER BROOK ARTS AND COMMUNITY CENTER • SOUTH SHORE YMCA • FREEDOM HOUSE • BOYS & GIRLS CLUB OF METROWEST • HALE RESERVATION CARITAS COMMUNITIES/BEDFORD VETERANS QUARTERS • THE CENTER FOR ARTS IN NATICK • THE DEDHAM COMMUNITY ASSOCIATION • NORFOLK ADULT DAY HEALTH CENTER HOME HEALTH VNA • THE UNITED WAY OF MASS BAY & MERRIMACK VALLEY • THE BOYS & GIRLS CLUB OF GREATER HAVERHILL • RIVER EAST SCHOOL TO CAREERS MONSON ARTS COUNCIL • WARE FIRE DEPT 9-11 MEMORIAL • FOUNDATION FOR BELMONT EDUCATION • CAMBRIDGE HOUSING ASSISTANCE FUND • MARLBOROUGH HOSPITAL SOMERVILLE HOMELESS COALITION • WEST SPRINGFIELD PUBLIC LIBRARY • HOLYOKE CATHOLIC HIGH SCHOOL • SPRINGFIELD TECHNICAL COMMUNITY COLLEGE BOYS & GIRLS CLUB OF METROWEST • EMPLOYMENT OPTIONS • D’YOUVILLE LIFE & WELLNESS • LOWELL GENERAL HOSPITAL/CIRCLE HEALTH • MERRIMACK VALLEY RIVER HOUSE GREENFIELD COMMUNITY COLLEGE • NORTHAMPTON PRIDE • FRANKLIN COUNTY HOME CARE CORPORATION • BOYS AND GIRLS CLUB OF SALEM • PLUMMER HOME PEABODY ESSEX MUSEUM • CANTON FOOD PANTRY • NEW ENGLAND CENTER FOR HOMELESS VETERANS • QUINCY COMMUNITY ACTION PROGRAM • CAMP PUTNAM VOLUNTEERS IN MEDICINE BERKSHIRES • LEE EDUCATIONAL ENRICHMENT FUND • COMMUNITY ACCESS TO THE ARTS • INDIAN HILL MUSIC & ARTS • CARDINAL CUSHING CENTERS LOAVES & FISHES FOOD PANTRY • AYER-SHIRLEY EDUCATION FOUNDATION • WEYMOUTH FOOD PANTRY • SOUTH SHORE HABITAT FOR HUMANITY • GIRLS INC. QUNSIGAMOND COMMUNITY COLLEGE • NORTH BROOKFIELD YOUTH CENTER • BELIKEBRIT • LITERACY VOLUNTEERS OF GREATER WORCESTER • MARLBOROUGH HOSPITAL HUDSON & MAYNARD ADULT LEARNING CENTER • YMCA OF CENTRAL MASS • ANNA JAQUES HOSPITAL • NEWBURYPORT EDUCATION FOUNDATION • OUR NEIGHBOR’S TABLE MILLBURY BICENTENNIAL • FRIENDS OF THE MILLBURY SENIORS’ MEALS ON WHEELS • MILLBURY DOLLARS FOR SCHOLARS • CIRCLE HEALTH AT LOWELL GENERAL HOSPITAL MERRIMACK REPERTORY THEATRE • MERRIMACK VALLEY HOSPICE HOUSE • WELLSPRING • PATHWAYS FOR CHILDREN • ROCKPORT EDUCATIONAL FOUNDATION PIONEER VALLEY HABITAT FOR HUMANITY • DAIKEN HUMANE SOCIETY • NORTHAMPTON SURVIVAL CENTER • ATHOL AREA YMCA • HOUSE OF PEACE & EDUCATION GREATER GARDNER CHAMBER OF COMMERCE • UNITED WAY OF MASSACHUSETTS BAY AND MERRIMACK VALLEY • CIRCLE HEALTH – LOWELL GENERAL HOSPITAL BOYS AND GIRLS CLUB OF GREATER LOWELL • NORTHERN BERKSHIRE UNITED WAY • WILLIAMSTOWN YOUTH CENTER • ADAMS YOUTH CENTER • CAPE ANN MUSEUM GLOUCESTER EDUCATION FOUNDATION • CAPE ANN SYMPHONY • FALL RIVER CHILDREN’S MUSEUM • YMCA SOUTHCOAST • HEALTHFIRST FAMILY CARE CENTER NORTH ADAMS STEEPLECATS • MASSACHUSETTS COLLEGE OF LIBERAL ARTS • WILLIAMSTOWN YOUTH CENTER • HOUSING CORPORATION OF ARLINGTON COUNCIL OF SOCIAL CONCERN • CAPE COD HEALTHCARE • WINCHESTER ABC PROGRAM • CAPE COD COMMUNITY COLLEGE • ARTS FOUNDATION OF CAPE COD THE FAMILY PANTRY OF CAPE COD • BOLTON 5K RALLY • CLINTON HOSPITAL FOUNDATION • GROWING PLACES GARDEN PROJECT • UNITED WAY OF WEBSTER DUDLEY WORCESTER CENTER FOR PERFORMING ARTS • NICHOLS COLLEGE • UNITED WAY OF PIONEER VALLEY • SOUTH HADLEY PUBLIC LIBRARY • WORCESTER COUNTY FOOD BANK CHICOPEE SENIOR CENTER • HARRINGTON MEMORIAL HOSPITAL - SOUTHBRIDGE • OLD STURBRIDGE VILLAGE • MERRIMACK VALLEY HOSPICE • MERRIMAC LIBRARY MERRIMAC COUNCIL ON AGING • TOWN OF BRIDGEWATER - HOUSING PARTNERSHIP • EAST BRIDGEWATER MUSIC PARENTS • OLD COLONY YMCA • FRIENDS OF SOUTH SHORE HOSPITAL • ATLANTIC SYMPHONY ORCHESTRA • GLASTONBURY ABBEY • WESTPORT HISTORICAL SOCIETY • COMMUNITY FOUNDATION OF SOUTHEASTERN MASS DARTMOUTH YMCA • MOTHER BROOK ARTS AND COMMUNITY CENTER • SOUTH SHORE YMCA • FREEDOM HOUSE • BOYS & GIRLS CLUB OF METROWEST • HALE RESERVATION

communitybanking

neighbors helping neighbors We are your neighbors. We live and work in your towns. We patronize your businesses. Our children attend the same schools. We care about the same local issues. We personally invest time, energy and knowledge to help our residents thrive. We are your community bank.

DEPOSITORS INSURANCE FUND ANNUAL REPORT

Year ended October 31, 2013 TABLE OF CONTENTS DIF Member Banks 1 Officers and Board of Directors 2 Depositors Insurance Fund Highlights 3 Industry Highlights 4 Letter from the President 6

2013 FINANCIAL STATEMENTS Deposit Insurance Fund Independent Auditors’ Report 10 Consolidated Statements of Condition 11 Consolidated Statements of Net Income 12 Consolidated Statements of Comprehensive Income (Loss) 13 Consolidated Statements of Changes ANNUAL MEETING in Fund Balance 14 April 2, 2014; Sheraton Framingham Hotel, Consolidated Statements of Cash Flows 15 Framingham, Massachusetts; 10:00 a.m. Notes to Consolidated Financial Statements 16 BANKERS’ NOTE Liquidity Fund All historical references to industry financial data Independent Auditors’ Report 30 in this report reflect only current DIF member Statements of Condition 31 banks’ data. Statements of Comprehensive Loss 32 DEPOSITORS INSURANCE FUND Statements of Changes in Fund Balance 33 The Depositors Insurance Fund (DIF) is a private, Statements of Cash Flows 34 industry-sponsored insurance company that insures Notes to Financial Statements 35 all deposits in Massachusetts-chartered savings banks over the FDIC insurance limits. dedication and support

DIF MEMBER BANKS

Adams Community Bank Eagle Bank Newburyport Five Cents Athol Savings Bank East Boston Savings Bank Savings Bank Avidia Bank East Cambridge Savings Bank North Brookfield Savings Bank Bank of Canton Easthampton Savings Bank North Easton Savings Bank BankFive Florence Savings Bank North Middlesex Savings Bank Barre Savings Bank Granite Savings Bank Pentucket Bank BayCoast Bank Greenfield Savings Bank PeoplesBank Bay State Savings Bank Hampden Bank The Provident Bank Belmont Savings Bank Hingham Institution Randolph Savings Bank Berkshire Bank for Savings Salem Five Bank Blue Hills Bank Institution for Savings The Savings Bank Bridgewater Savings Bank Lee Bank Seamen’s Bank Bristol County Savings Bank The Lowell Five Cent South Shore Bank Savings Bank Brookline Bank Southbridge Savings Bank Marblehead Bank Cambridge Savings Bank SpencerBANK Marlborough Savings Bank Cape Ann Savings Bank UniBank Martha’s Vineyard Washington Savings Bank Cape Cod Five Cents Savings Bank Savings Bank Watertown Savings Bank Merrimac Savings Bank Chicopee Savings Bank Webster Five Middlesex Savings Bank Clinton Savings Bank Winchester Savings Bank Millbury Savings Bank Country Bank At April 2, 2014 Monson Savings Bank Dedham Institution for Savings MountainOne Bank

1 Providing financial solutions to local businesses and families is only one way that DIF member banks strengthen their communities. Banks also provide vital support for a wide range of non-profits, including social services, education, youth activities, and arts and culture. community strength

OFFICERS BOARD OF DIRECTORS Norman S. Seppala Maura O. Banta William H. Mitchelson Chairman Director of Global Citizenship Chairman Initiatives in Education Salem Five Bank John F. Heaps, Jr. IBM Corporation Vice Chairman Michael H. Mulhern Richard K. Bennett Executive Director David Elliott President and Chief Executive Officer MBTA Retirement Fund President and Chief Marlborough Savings Bank Executive Officer Mark R. O’Connell John C. Boucher President and Chief Executive Officer Mark S. Medvin President and Chief Executive Officer Avidia Bank Executive Vice President, South Shore Bank Chief Operating Officer Norman S. Seppala and Treasurer Donna L. Boulanger President and Chief Executive Officer President and Chief Executive Officer Granite Savings Bank Edward J. Geary North Brookfield Savings Bank Senior Vice President Marvin Siflinger Karl E. Case Chairman John J. D’Alessandro Professor Emeritus of Economics Housing Partners, Inc. Vice President Wellesley College Senior Fellow Arthur C. Spears Kara M. McNamara Joint Center for Housing Studies Director Vice President Harvard University East Cambridge Savings Bank

William G. Gothorpe William J. Wagner Trustee President and Chief Executive Officer Dedham Institution for Savings Chicopee Savings Bank

John F. Heaps, Jr. President and Chief Executive Officer Florence Savings Bank

Steven E. Lowell President and Chief Executive Officer Monson Savings Bank

2 DEPOSITORS INSURANCE FUND HIGHLIGHTS

As of October 31, 2013 Deposit Insurance Fund 2013 2012 Annual Assessments $ 1,661,173 $ 1,441,629 Funds Available $ 374,708,348 $ 375,724,427 Insured Excess Deposits $ 10,098,784,437 $ 8,055,080,780 Coverage Ratio1 3.71% 4.66%

Liquidity Fund 2013 2012 Fund Balance $ 6,416,693 $ 6,438,967

1 The Coverage Ratio is equal to the DIF’s liquid assets available for the insurance of deposits (Funds Available) divided by its Insured Excess Deposits.

“Community banks are there for the community in good times and bad, providing corporate leadership as well as philanthropy and volunteerism.”

— Dorothy Savarese President and Chief Executive Officer The Cape Cod Five Cents Savings Bank

3 Nurturing the next generation is a prominent theme in savings banks’ community commitment. From the local YMCA and Boys & Girls Club to special education programs and homes for troubled youth, organizations depend on DIF member banks for financial support and guidance. a focus on youth

INDUSTRY HIGHLIGHTS

(In thousands,thousands, calendar calendar year) year) 2013 2012 Balance Sheet Assets: Securities $12,098,918 $12,266,985 Loans (net) 42,743,709 39,334,512 Other 5,398,494 5,839,006 Total Assets $60,241,121 $57,440,503 Liabilities: Deposits $47,130,483 $45,653,826 Borrowed Funds 5,979,649 4,782,774 Other 608,454 762,819 Total Liabilities 53,718,586 51,199,419 Equity Capital 6,522,535 6,241,084 Total Liabilities and Equity Capital $60,241,121 $57,440,503

Income Statement Total Interest Income $ 2,059,927 $ 2,094,319 Total Interest Expense 368,004 430,929 Net Interest Income 1,691,923 1,663,390 Total Noninterest Income 373,260 397,063 Total Noninterest Expense 1,561,381 1,497,721 Provision for Loan & Lease Losses 60,074 87,469 Taxes on Operations 136,709 150,699 Operating Earnings 307,019 324,564 Other Income 62,238 44,375 Net Income $ 369,257 $ 368,939

4 Operating Expense as % Net Interest Margin of Average Total Assets Return on Average Assets 3.07 3.24 3.23 3.22 3.11 2.64 2.70 2.70 2.71 2.69 0.27 0.56 0.59 0.67 0.64

09 10 11 12* 13* 09 10 11 12* 13* 09 10 11 12* 13*

Nonperforming Assets as % Nonperforming Assets as % Tier 1 Leverage Capital Ratio of Equity Capital & Allowance of Total Assets 9.55 9.79 10.19 10.08 10.27 12.15 12.28 10.95 8.69 7.44 1.32 1.38 1.26 1.01 0.86

09 10 11 12* 13* 09 10 11 12* 13* 09 10 11 12* 13*

*INCLUDES BROOKLINE BANK

5 Beyond financial support, DIF member bank employees also contribute plenty of people power in their communities. Employees volunteer their skills and enthusiasm in countless hours of service for everything from youth sports to animal shelters, local food pantries, and Habitat for Humanity projects. volunteering and service

LETTER FROM THE PRESIDENT

assachusetts-chartered savings uneven progress following the financial crisis, the banks, like community banks economy displayed sufficient strength for the Federal nationwide, play a unique and vital Reserve to announce at year-end that it would start role in their communities that goes tapering back its bond-buying stimulus in January 2014. far beyond lending and deposit- However, reflecting the fact that the pace of growth still Mtaking. In this annual report, we are proud to recognize lagged past recoveries, the Fed pledged to keep short- DIF member banks’ financial and volunteer support term interest rates near zero for an extended period. for a wide range of local non-profits and community U.S. economic growth accelerated in the third quarter activities that make their cities and towns better places of 2013 before slowing somewhat in the final quarter. to live and work. At year-end, the U.S. jobless rate stood at 6.7 percent In the most recent data available, Massachusetts compared with 7.9 percent in 2012. Auto sales were banks of all types contributed nearly $63 million to the highest in six years, and resurgent new home sales charities in 2012, with savings banks representing a combined with sales of existing homes made 2013 the significant portion of the total. In 2013, DIF member best year for residential real estate since 2006. banks again provided financial and volunteer In response to the encouraging economic signs as support to hundreds of non-profits in Massachusetts. well as continued easy-money policies, the stock market Organizations across the Commonwealth, from the turned in its best performance in more than a decade. Berkshire Taconic Community Foundation to Cape Stocks overcame a mid-year hiccup after the Fed first Cod Healthcare, benefited from the community broached the possibility of tapering, as well as another commitment of their local DIF member bank. Besides setback from the 16-day federal government shutdown non-profit organizations, banks also help support in October. The Dow Jones Industrial Average gained countless community activities and events. A sampling 26.50 percent for the year, while the S&P 500 jumped from the past year includes fuel assistance programs, 29.60 percent and the NASDAQ added 38.32 percent. a middle school musical instrument drive, public Although Massachusetts trailed the nation with libraries, youth sports leagues, animal shelters, and a slight rise in unemployment during 2013, by most even a dodge-ball tournament – to name just a few. measures the state’s economy extended its solid The charitable-giving environment got a boost rebound from the financial crisis. More than 55,000 in 2013 from a stronger U.S. economy. After years of new jobs were created in the Commonwealth, the

6 commitment

most since 2000 at the height of the dot-com boom. In the last three months of 2013, the Massachusetts economy In 2013, DIF member expanded at an annual rate of 5.5 percent, compared with 2.4 percent for the national economy, according to a University of banks again provided Massachusetts report. One important driver of growth was the continued financial and volunteer recovery of the state’s housing market. According to the Warren Group, Massachusetts home sales rose 4.9 percent in support to hundreds 2013, and the median single-family home price increased 10.3 of non-profits in percent to $320,000. The median condo price rose 7.1 percent to $296,000, and overall condo sales were up 6.8 percent. Massachusetts. The Massachusetts savings bank industry delivered solid results in 2013. Amid the strengthening economy, lending by Massachusetts savings banks continued to rise and asset quality further improved. Nonperforming assets as a percentage of total assets fell to 0.86 percent in 2013 from 1.01 percent a year earlier. Return on average assets was 64 basis points, down slightly from 67 basis points in 2012. Amid the continued low-yield environment, the industry’s net interest margin fell to 3.11 percent from 3.22 percent a year earlier. However, the Tier 1 Leverage Capital Ratio rose to 10.27 percent from 10.08 percent in 2012. Operating expense as a percentage of average total assets also showed improvement, falling to 2.69 percent from 2.71 percent in 2012. At October 31, 2013, the Deposit Insurance Fund held $375 million in gross funds available for insurance of deposits. All investments held by the Fund were U.S. Treasury or agency obligations, or fully guaranteed as to principal and interest by the U.S. government.

7 At fiscal year-end, the DIF insured $10.1 billion in Art Spears also joined the Board in 2008 and excess deposits in member banks, compared to $8.06 served on the Executive, Audit and Compensation billion a year earlier. The DIF coverage ratio at fiscal Committees. As Chairman of the Audit Committee, year-end was 3.71 percent. Art provided important guidance to the DIF in handling The DIF continued to support member banks’ investment accounting issues that arose in 2013. Bill efforts to educate customers about the benefits of Gothorpe is completing his second tenure on the full deposit insurance. The amount reimbursed to Board, which he rejoined in 2012 after previously member banks through the DIF’s reimbursement serving from 2004-2010, including as Chairman from program increased to $102,000 in 2013. Of the total, 2007-2010. In the past two years, Bill has served on the nearly $12,000 was for the DIF’s supplemental Compensation and Watch Bank Committees. Bill is reimbursement offer for communications targeting known at Dedham Savings and at the DIF as the “go-to concerns raised by the end of the FDIC’s Transaction guy” for advice and counsel. Both Art and Bill provided Account Guarantee (TAG) program. The supplemental invaluable leadership to the Board, and I thank them offer was designed to help banks communicate to for their dedicated service. transaction account customers that their excess In conclusion, I extend my thanks to our Board of transaction account deposits would automatically Directors and staff for their dedication and diligent become insured by the DIF upon the end of the TAG efforts over the past year. The DIF is fortunate to program on December 31, 2012. A number of member have a staff with many years of service, including banks took advantage of the special reimbursement Executive Vice President and Treasurer Mark Medvin, with communications early in 2013 highlighting that 31 years; Senior Vice President Ted Geary, 11 years; transaction accounts remained fully insured with a Vice President John D’Alessandro, 26 years; Vice combination of FDIC and DIF coverage. President Kara McNamara, 23 years; Senior Financial Three long-serving directors are leaving our Board Analyst Matt Calnan, 18 years; Reports Specialist with the annual meeting. Norm Seppala, Chairman Maura Villanova, 12 years; Accounting Specialist Susan for the past year, joined the Board in 2008. In addition Dubiel, 31 years; Executive Assistant Karen Holland, to Chairman, he served as Vice Chairman, Chairman 30 years; and our communications consultant Steve of the Investment Committee, and a member of the Brayton, 9 years. I thank everyone for their continued Executive, Watch Bank, Nominating, Long-Range service to the DIF. Planning and Compensation Committees during his tenure. As Chairman, Norm has been a steady hand at the helm of the DIF. I will miss his leadership and thoughtful counsel.

David Elliott President and Chief Executive Officer

8 2013 FINANCIAL STATEMENTS

TABLE OF CONTENTS

Deposit Insurance Fund Independent Auditors’ Report 10 Consolidated Statements of Condition 11 Consolidated Statements of Net Income 12 Consolidated Statements of Comprehensive Income (Loss) 13 Consolidated Statements of Changes in Fund Balance 14 Consolidated Statements of Cash Flows 15 Notes to Consolidated Financial Statements 16

Liquidity Fund Independent Auditors’ Report 30 Statements of Condition 31 Statements of Comprehensive Loss 32 Statements of Changes in Fund Balance 33 Statements of Cash Flows 34 Notes to Financial Statements 35

9 DEPOSIT INSURANCE FUND INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of the Depositors Insurance Fund:

Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of the Deposit Insurance Fund and subsidiary, which comprise the consolidated statemens of condition as of October 31, 2013 and 2012, and the related consolidated statements of net income, comprehensive income (loss), changes in fund balance and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Deposit Insurance Fund and subsidiary as of October 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Boston, Massachusetts January 15, 2014

10 DEPOSIT INSURANCE FUND CONSOLIDATED STATEMENTS OF CONDITION

October 31, 2013 and 2012 2013 2012 Assets Cash and cash equivalents $ 15,645,448 $ 4,623,733 Trading securities, at fair value — 1,456,851 Securities available for sale, at fair value 358,241,812 369,293,689 Federal Home Loan Bank stock 1,076,800 1,070,900 Accrued interest receivable 1,601,229 1,810,208 Other assets 142,570 136,052 Total assets $376,707,859 $378,391,433

Liabilities and Fund Balance Accrued expenses and other liabilities $ 780,141 $ 1,460,054 Total liabilities 780,141 1,460,054

Commitments and contingencies (Note 6)

Undistributed fund balance 374,930,601 373,263,316 Accumulated other comprehensive income 997,117 3,668,063

Total fund balance 375,927,718 376,931,379 Total liabilities and fund balance $376,707,859 $378,391,433

See accompanying notes to consolidated financial statements.

11 DEPOSIT INSURANCE FUND CONSOLIDATED STATEMENTS OF NET INCOME

Years Ended October 31, 2013 and 2012 2013 2012 Income: Interest and dividends on investments $4,243,148 $5,045,255 Net gain on investments 380,169 1,007,061 Recovery of prior provision for anticipated deposit insurance losses — 2,500,000 Total income 4,623,317 8,552,316

Expenses: Salaries, employee benefits and related expenses 2,164,122 2,185,653 Professional and contract services 493,986 495,973 Technology 178,680 202,264 Deposit insurance materials 225,119 225,193 Meetings and travel 181,024 186,093 Employee incentive plan 188,000 190,000 Legal 27,146 56,531 Occupancy 83,291 85,512 Insurance 60,345 65,265 Other operating expenses 189,900 188,567 3,791,613 3,881,051 Expenses allocated to Liquidity Fund (40,128) (41,263) Total expenses, net 3,751,485 3,839,788 Net income $ 871,832 $4,712,528

See accompanying notes to consolidated financial statements.

12 DEPOSIT INSURANCE FUND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended October 31, 2013 and 2012 2013 2012

Net income $ 871,832 $4,712,528 Other comprehensive loss: Securities available for sale: Unrealized holding (losses) gains arising during the year (3,028,584) 87,453 Reclassification adjustment for gains realized in net income (435,021) (1,003,678) Net unrealized losses (3,463,605) (916,225)

Defined benefit plan: Reclassification adjustment for losses recognized in net income 97,949 72,903 Gains (losses) arising during the period 694,724 (28,588) Reclassification adjustment for transition asset recognized in net income (14) (6,296) Net unrecognized gains 792,659 38,019 Other comprehensive loss (2,670,946) (878,206) Comprehensive (loss) income $(1,799,114) $3,834,322

See accompanying notes to consolidated financial statements.

13 DEPOSIT INSURANCE FUND CONSOLIDATED STATEMENTS OF CHANGES IN FUND BALANCE

Years Ended October 31, 2013 and 2012 Accumulated Other Undistributed Comprehensive Total Fund Fund Balance Income Balance

Fund balance at October 31, 2011 $368,253,484 $4,546,269 $372,799,753

Comprehensive income 4,712,528 (878,206) 3,834,322 Assessments from member banks 1,441,629 — 1,441,629 Dividends to member banks (1,144,325) — (1,144,325)

Fund balance at October 31, 2012 373,263,316 3,668,063 376,931,379 Comprehensive loss 871,832 (2,670,946) (1,799,114 Assessments from member banks 1,661,173 — 1,661,173 Dividends to member banks (865,720) — (865,720)

Fund balance at October 31, 2013 $374,930,601 $ 997,117 $375,927,718

See accompanying notes to consolidated financial statements.

14 DEPOSIT INSURANCE FUND CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended October 31, 2013 and 2012 2013 2012 Cash flows from operating activities: Net income $ 871,832 $ 4,712,528 Adjustments to reconcile net income to net cash provided by operating activities: Recovery of prior provision for anticipated deposit insurance losses — (2,500,000) Maturities and paydowns of trading securities 117,272 308,775 Net unrealized holding loss (gain) on trading securities 54,852 (3,383) Gain on sales of securities available for sale (435,021) (1,003,678) Net amortization of securities available for sale 3,685,730 4,334,893 Net change in: Accrued interest receivable 208,979 418,936 Other assets (6,518) (49,972) Accrued expenses and other liabilities 112,746 (252,374) Net cash provided by operating activities 4,609,872 5,965,725

Cash flows from investing activities: Proceeds from sales of securities available for sale 128,486,838 83,334,266 Proceeds from maturities and paydowns of securities available for sale 21,951,007 50,761,029 Purchases of securities available for sale (144,815,555) (139,272,338) (Purchase) redemption of Federal Home Loan Bank stock (5,900) 110,600 Net cash provided (used) by investing activities 5,616,390 (5,066,443)

Cash flows from financing activities: Assessments from member banks 1,661,173 1,441,629 Dividends paid to member banks (865,720) (1,144,325) Net cash provided by financing activities 795,453 297,304 Net change in cash and cash equivalents 11,021,715 1,196,586

Cash and cash equivalents at beginning of year 4,623,733 3,427,147

Cash and cash equivalents at end of year $ 15,645,448 $ 4,623,733

Non-cash activities: Reclassification of securites from trading to available for sale $ 1,284,727 $ —

See accompanying notes to consolidated financial statements.

15 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended October 31, 2013 and 2012

1. DESCRIPTION OF BUSINESS

Depositors Insurance Fund The Depositors Insurance Fund (the “DIF”), which did business under the name Mutual Savings Central Fund, Inc. until February 1993, was established by the Massachusetts Legislature in 1932 and is now comprised of the Deposit Insurance Fund and its subsidiary and the Liquidity Fund. The two funds may not be commingled and the assets of one do not stand behind the liabilities of the other. The Deposit Insurance Fund and the Liquidity Fund share office space and personnel. Costs incurred are generally paid by the Deposit Insurance Fund and allocated to the Liquidity Fund. The DIF is an organization described under Section 501(c)(14) of the Internal Revenue Code (the “Code”) and is exempt from taxes on related income under Section 501(a) of the Code. In the event a member bank obtains a federal charter or merges into a nonmember, its membership in the DIF is terminated and the DIF retains all amounts paid into the DIF by the member bank. Banks whose membership in the DIF has been terminated as a result of obtaining a federal charter may reapply for excess deposit insurance. There are currently no federal member banks in the DIF.

Deposit Insurance Fund The Deposit Insurance Fund (the “Fund”) was established in 1934 for the insurance of all deposits in Massachusetts savings banks. All Massachusetts savings banks are now members of the Federal Deposit Insurance Corporation (the “FDIC”). Therefore, the Deposit Insurance Fund currently insures only those deposits in excess of the FDIC limit as defined by the FDIC (“excess deposits”). In consideration for the insurance provided, the Fund charges assessments at rates determined by the Board of Directors and approved by the Commissioner of Banks of the Commonwealth of Massachusetts (the “Commissioner”). The assessments are based upon the excess deposits of each bank insured by the Fund and the assessment rate may vary based on risk classifications assigned to each bank. The Fund insures depositors for the amount of their excess deposits plus accrued interest in the event the Commissioner determines a member bank to be insolvent. In addition, the Fund is empowered to provide assistance to a member bank when the Commissioner determines it is inadvisable or inexpedient for the member bank to continue to transact business without receiving financial assistance from the Fund. A member bank that is determined by the Board of Directors of the DIF to pose a greater than normal loss exposure risk to the Fund can, with the approval of the Commissioner, be required to take action(s) to mitigate the risk. As an alternative to taking any such action(s), the bank can withdraw from membership in the DIF. In such event (i) the DIF retains all amounts paid into the DIF by the bank, and the bank retains its rights to share in any dividends paid by the DIF and the proceeds of any liquidation of the Fund; and (ii) the Fund continues to insure the term excess deposits in the bank as of the date of withdrawal until their maturity and all other excess deposits in the bank on such date for one year.

16 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates The consolidated financial statements of the Fund include the accounts of the Fund and its wholly-owned subsidiary, JAE Corporation, organized to hold and liquidate certain assets of a failed institution. All intercompany balances have been eliminated. Income and expenses of the Fund and its subsidiary are recognized on the accrual method of accounting. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the reserve for insurance losses. See Note 4 – Anticipated Deposit Insurance Losses.

Cash and Cash Equivalents For purposes of the statements of cash flows, the Fund considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

Fair Value Hierarchy The Fund groups its assets that are measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets. Level 1 assets generally include debt securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Transfers between levels are recognized at the end of a reporting period, if applicable. Transfers into and out of levels are determined by a third-party pricing service based on inputs used in pricing models.

Securities Securities that are purchased and held principally for the purpose of selling them in the near term are classified as “trading” and carried at fair value, with unrealized gains and losses included in earnings. Securities not classified as “trading” are classified as “available for sale” and carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Premiums and discounts are recognized in income by a method that approximates the interest method over the terms of the securities. The cost of securities sold is determined on a specific-identification basis. On October 1, 2013, the Fund reclassified all trading securities to the available-for-sale category, with the fair values at the date of transfer becoming the new amortized cost basis. Changes in fair value subsequent to the reclassification are recognized in other comprehensive income.

17 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Each reporting period, the Fund evaluates all securities classified as available for sale with a fair value below amortized cost to determine whether or not the impairment is deemed to be other than temporary (“OTTI”). OTTI is required to be recognized if (1) the Fund intends to sell the security; (2) it is more likely than not that the Fund will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For impaired debt securities that the Fund intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income. The DIF has an agreement with an unrelated investment advisor whereby the advisor provides investment management services to the Fund. Investment authority has been granted to the investment advisor within prescribed limits on allowable investments. At October 31, 2013 and 2012, assets under management had a fair value of $274,351,236 and $268,988,000, respectively.

Federal Home Loan Bank Stock Federal Home Loan Bank stock is a restricted equity security and is carried at cost.

Assessments Assessments are recorded as additions to the fund balance in the statement of changes in fund balance in the year in which the insurance to which they apply is provided to depositors.

Dividends The Fund may pay an annual discretionary dividend which requires approval of the DIF Board of Directors and the Commissioner. Dividends are accrued by a charge to the undistributed fund balance when all approvals are received.

Anticipated Deposit Insurance Losses on Member Banks An accrued liability for anticipated deposit insurance losses may be recorded with respect to certain banks determined by DIF management, in consultation with regulatory authorities, to be experiencing serious financial difficulties, as well as general losses based on many factors such as historical experience and current economic conditions. Substantial weight is accorded to indications from regulatory authorities that a member bank has an extremely high or near-term possibility of failure. See Note 4 – Anticipated Deposit Insurance Losses.

Pension Plan The compensation cost of an employee’s pension benefit is recognized on the net periodic pension cost method over the employee’s approximate service period. The aggregate cost method is utilized for funding purposes. The Fund recognizes in its statement of condition the funded status of the pension plan, measures the plan’s assets and its obligations that determine its funded status as of the end of the DIF’s fiscal year, and recognizes, through other comprehensive income, changes in the funded status of the pension plan that are not recognized as net periodic benefit cost.

Comprehensive Income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities and unrecognized pension benefit cost elements, are reported as a separate component of the fund balance section of the statement of condition, such items, along with net income, are components of comprehensive income.

18 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of accumulated other comprehensive income, included in the fund balance at October 31, 2013 and 2012, are as follows: 2013 2012 Net unrealized gain on securities available for sale $1,217,241 $ 4,680,846 Unrecognized actuarial loss pertaining to defined benefit pension plan (220,124) (1,012,797) Unrecognized transition asset pertaining to defined benefit pension plan — 14 $ 997,117 $ 3,668,063

Approximately $21,000 of the unrecognized actuarial loss included in accumulated other comprehensive income at October 31, 2013 is expected to be recognized as a component of net periodic pension cost in fiscal 2014.

Expense Allocation Expenses of the Fund are allocated to the Liquidity Fund based on a formula of 2% of all expenses, excluding those expenses directly related only to the Fund.

Recent Accounting Pronouncements In fiscal 2013, the Fund adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which clarifies and expands the disclosures pertaining to unobservable inputs used in Level 3 fair value measurements, including the disclosure of quantitative information related to (1) the valuation processes used, (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, and (3) use of a nonfinancial asset in a way that differs from the asset’s highest and best use. The adoption of this guidance did not have a material impact on the Fund’s consolidated financial statements. In fiscal 2013, the Fund adopted FASB ASU 2011-05,Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which amends the disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in surplus. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. See Consolidated Statements of Comprehensive Income (Loss) presented herein. In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220), Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The amendments are effective prospectively for the year ending October 31, 2015, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Fund’s consolidated financial statements.

19 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. INVESTMENTS Securities Available for Sale Mortgage- and asset-backed securities are issued by government-sponsored enterprises or federal agencies, or are fully guaranteed by the U.S. government. Of the mortgage- and asset-backed securities at October 31, 2013, approximately 66% are backed by residential mortgages. The amortized cost, fair value, and unrealized gains and losses on securities classified as available for sale at October 31, 2013 and 2012, by contractual maturity, are presented in the following tables:

2013 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Treasury obligations and guarantees: Due in one year or less $ 12,065,906 $ 35,008 $ — $ 12,100,914 Due after one year through five years 124,827,303 724,408 (157,554) 125,394,157 136,893,209 759,416 (157,554) 137,495,071 U.S. government-sponsored enterprise obligations: Due in one year or less 42,317,081 97,924 (100) 42,414,905 Due after one year through five years 117,785,226 456,987 (206,773) 118,035,440 160,102,307 554,911 (206,873) 160,450,345 Mortgage- and asset-backed securities: Due in one year or less 134,455 1,105 (452) 135,108 Due after one year through five years 4,069,095 119,244 (5,273) 4,183,066 Due after five years through ten years 19,902,474 366,952 (197,429) 20,071,997 Due after ten years 35,923,031 359,226 (376,032) 35,906,225 60,029,055 846,527 (579,186) 60,296,396 Total securities available for sale $357,024,571 $2,160,854 $(943,613) $358,241,812

2012 U.S. Treasury obligations and guarantees: Due in one year or less $ 7,411,415 $ 73,361 $ (4) $ 7,484,772 Due after one year through five years 120,320,507 1,489,696 (95,161) 121,715,042 Due after five years through ten years 5,735,475 124,337 (19,117) 5,840,695 Due after ten years 4,642,686 7,544 — 4,650,230 138,110,083 1,694,938 (114,282) 139,690,739 U.S. government-sponsored enterprise obligations: Due in one year or less 46,090,382 335,685 (3) 46,426,064 Due after one year through five years 132,687,466 982,940 (10,618) 133,659,788 178,777,848 1,318,625 (10,621) 180,085,852 Mortgage- and asset-backed securities: Due in one year or less 382,175 12,430 (136) 394,469 Due after one year through five years 6,040,554 92,810 (6,174) 6,127,190 Due after five years through ten years 11,332,368 603,632 (5,504) 11,930,496 Due after ten years 29,969,815 1,146,611 (51,483) 31,064,943 47,724,912 1,855,483 (63,297) 49,517,098 Total securities available for sale $364,612,843 $4,869,046 $(188,200) $369,293,689

20 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Proceeds from sales of securities available for sale during fiscal 2013 and 2012 were $128,486,838 and $83,334,266, respectively, with gross gains of $504,094 and $1,003,678, respectively, being realized. Gross realized losses amounted to $69,073 for fiscal 2013. No losses were realized during fiscal 2012. The components of the net gain on investments included in the consolidated statements of net income for the years ended October 31, 2013 and 2012 are as follows: 2013 2012 Gain on sales of securities available for sale, net $435,021 $1,003,678 Unrealized holding (loss) gain on trading securities, net (54,852) 3,383 Net gain on investments $380,169 $1,007,061

Gross unrealized losses on securities available for sale and the fair value of the related securities, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at October 31, 2013 and 2012, are as follows:

Less Than Twelve Months Over Twelve Months Total Fair Unrealized Fair Unrealized Fair Unrealized 2013 Value Losses Value Losses Value Losses U.S. Treasury obligations and guarantees $23,313,618 $(136,269) $5,797,348 $ (21,285) $ 29,110,966 $(157,554) U.S. government-sponsored enterprise obligations 30,981,331 (206,773) 1,600,096 (100) 32,581,427 (206,873) Mortgage- and asset-backed securities 38,182,877 (573,913) 1,334,520 (5,273) 39,517,397 (579,186) $92,477,826 $(916,955) $8,731,964 $ (26,658) $101,209,790 $(943,613)

2012 U.S. Treasury obligations and guarantees $10,276,834 $ (95,027) $3,252,127 $ (19,255) $ 13,528,961 $(114,282) U.S. government-sponsored enterprise obligations 9,147,473 (10,621) — — 9,147,473 (10,621) Mortgage- and asset-backed securities 6,821,131 (43,308) 519,990 (19,989) 7,341,121 (63,297) $26,245,438 $(148,956) $3,772,117 $ (39,244) $ 30,017,555 $(188,200)

At October 31, 2013, debt securities with unrealized losses have aggregate depreciation of less than 1% of their amortized cost, reflective of interest rate changes. The principal and accrued interest on all of the securities are guaranteed by the U.S. Government, an agency of the U.S. Government, or both. Because the Fund does not intend to sell the securities and it is unlikely that it will be required to sell the securities before recovery of their amortized cost bases (which may be at maturity), management does not consider these securities to be other-than-temporarily impaired at October 31, 2013.

21 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trading Securities At October 31, 2012, trading securities were comprised entirely of mortgage-backed securities issued by U.S. government-sponsored enterprises. The fair values of such securities, by contractual maturity, were as follows: 2012 Due in one year or less $ 18 Due after one year through five years 5,329 Due after ten years 1,451,504 $1,456,851

On October 1, 2013, the Fund reclassified all trading securities to the available-for-sale category. See Note 2 – Securities.

Federal Home Loan Bank Stock The DIF is a member of the Federal Home Loan Bank of Boston (“FHLBB”). As a condition of membership, the DIF is required to maintain an investment in FHLBB stock based on the DIF’s holdings of U.S. Treasury and government- sponsored enterprise obligations. Additional stock purchases are required based on growth of the DIF’s holdings of U.S. Treasury and government-sponsored enterprise obligations and/or usage of FHLBB advances and related services. The DIF reviews its investment for impairment based on the ultimate recoverability of the cost basis in the FHLBB stock. As of October 31, 2013, no impairment has been recognized. At October 31, 2013, the DIF’s investment in FHLBB stock was $1,099,100, of which $1,076,800 was allocated to the Fund. The amount allocated to the Fund is based on the Fund’s holdings of U.S. Treasury and government- sponsored enterprise obligations and its use of FHLBB services, plus all stock held by the DIF in excess of the required holdings of the Fund and the Liquidity Fund. At October 31, 2012, the DIF’s investment in FHLBB stock was $1,092,600, of which $1,070,900 was allocated to the Fund. The DIF also has a master agreement with the FHLBB regarding advances, which are secured by the DIF’s FHLBB stock and specifically-pledged securities. As of October 31, 2013 and 2012, the DIF had no outstanding advances from the FHLBB and, accordingly, no securities were specifically pledged. FHLBB advances would be allocated to the Fund and the Liquidity Fund based on the portion of advances applicable to each fund.

22 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. ANTICIPATED DEPOSIT INSURANCE LOSSES In fulfilling its insurance responsibilities described in Note 1, the Fund may sustain losses in subsequent accounting periods as a result of honoring claims associated with excess deposits in insolvent banks. In addition, there are several types of assistance which may be given when it appears that a bank should not continue to transact business unaided or as an independent institution. It is possible that the Fund could sustain losses in subsequent accounting periods as a result of providing assistance to members. Any such losses could be material. Because many of the factors that might contribute to future losses to the Fund are beyond the DIF’s control, the amount of such losses, if any, generally cannot be determined or reasonably estimated (and, accordingly, are not reflected in the accrued liability for deposit insurance losses). Assessing the adequacy of the accrued liability for deposit insurance losses on member banks involves substantial uncertainties and is based upon management’s evaluation, after weighing various factors, of the amount required to meet estimated future losses for payment to depositors in insolvent banks having excess deposits. DIF management monitors the condition of insured member banks by reviewing their financial statements and regulatory examination reports and by meeting regularly with officials of the Commonwealth of Massachusetts Division of Banks and the FDIC to discuss industry conditions and specific problem banks. Substantial weight is accorded to indications from regulatory authorities that a member bank has an extremely high or near-term possibility of failure. Among the other factors management may consider regarding member banks are the amount of excess deposits, the amount of nonperforming assets in relation to regulatory capital and total loans and leases, the capital ratio, the recency of regulatory examinations, current economic conditions, and trends in the amount of excess deposits at banks which have failed. Ultimate losses may vary from current estimates. There was no accrued liability for the years ended October 31, 2013 and 2012. During the year ended October 31, 2012, the Fund recovered $2,500,000 of prior provisions for anticipated deposit insurance losses. The DIF has no independent authority to examine member banks, nor does it have independent authority to pay depositors or provide assistance unless the Commissioner has acted to close the member bank or to approve the assistance, respectively. Examinations of DIF members are conducted by the Commonwealth of Massachusetts Division of Banks and the FDIC. Regulatory policy has generally been for an examination to be performed at least once within every 12-month period, except that banks with assets not exceeding $500 million that are considered to be “well- capitalized” under FDIC regulations are generally examined once within every 18-month period. During fiscal 2013 and 2012, no member banks were closed by the Commissioner, and no deposit insurance payments were made by the DIF from the Fund.

5. EMPLOYEE BENEFIT PLANS Defined Benefit Pension Plan All employees of the DIF participate in a defined benefit pension plan offered and administered by the Savings Banks Employees Retirement Association (“SBERA” or the “Association”). Employees become eligible to participate in the plan after reaching 21 years of age and completing one year of service, and become 100% vested after completing three years of service. The DIF’s policy is to fund the plan within the allowable range under current law, determined on a discretionary basis. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

23 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information pertaining to the activity in the plan for the years ended October 31, 2013 and 2012 is as follows: 2013 2012 Change in benefit obligation: Benefit obligation at beginning of year $4,935,636 $4,567,463 Service cost 96,692 91,910 Interest cost 187,580 188,155 Actuarial (gain) loss (299,887) 93,445 Benefits paid (335,646) (5,337) Benefit obligation at end of year 4,584,375 4,935,636

Change in plan assets: Fair value of plan assets at beginning of year 4,015,432 3,326,176 Actual return on plan assets 680,667 294,593 Employer contribution — 400,000 Benefits paid (335,646) (5,337) Fair value of plan assets at end of year 4,360,453 4,015,432

Unfunded status at end of year $ (223,922) $ (920,204)

Accrued pension cost recognized in statement of condition $ 223,922 $ 920,204

Accumulated benefit obligation $3,797,544 $4,100,744

The following table presents certain assumptions used in determining the benefit obligation at October 31, 2013 and 2012 and the benefit cost for the years then ended: 2013 2012 Discount rate - funded status at year-end 4.75% 4.00% Discount rate - benefit cost 4.00 4.75 Rate of increase in compensation levels - funded status at year-end 4.00 4.00 Rate of increase in compensation levels - benefit cost 4.00 4.00 Expected long-term rate of return 8.00 8.00

In general, the DIF’s assumption with respect to the expected long-term rate of return is based on prevailing yields on high-quality, fixed-income investments increased by a premium for equity return expectations. In fiscal 2012, the Fund, with the guidance of the Association’s consulting actuaries, changed the assumptions for termination and retirement rates based on historical analysis of SBERA plan participants. The termination rate assumption was increased to reflect a higher level of terminations. The assumption that all participants retire at age 65 was changed to reflect varying retirement dates between age bands 55 to 70. The revision to these assumptions is a change in estimate that decreased the pension benefit obligation and resulted in an actuarial gain in fiscal 2012 in the amount of $503,007, which is more than offset by the actuarial loss for the decrease in the discount rate.

24 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net periodic pension cost for the years ended October 31, 2013 and 2012 are as follows: 2013 2012 Service cost $ 96,692 $ 91,910 Interest cost 187,580 188,155 Expected return on plan assets (301,732) (229,733) Amortization of transition asset (14) (6,296) Recognized net actuarial loss 97,949 72,903 Settlement loss 15,899 — $ 96,374 $116,939

The fair value of major categories of pension plan assets, and the measurement levels within the fair value hierarchy, are summarized below. October 31, 2013 Asset Category Level 1 Level 2 Level 3 Total Collective funds $ 110,616 $2,237,924 $ — $2,348,540 Equity securities 1,091,857 — — 1,091,857 Mutual funds 538,207 58,739 — 596,946 Hedge funds — — 304,796 304,796 Short-term investments 12,327 5,987 — 18,314 $1,753,007 $2,302,650 $304,796 $4,360,453

October 31, 2012 Asset Category Level 1 Level 2 Level 3 Total Collective funds $1,392,003 $ 748,223 $ — $2,140,226 Equity securities 989,804 — — 989,804 Mutual funds 567,782 — — 567,782 Hedge funds — — 291,520 291,520 Short-term investments — 26,100 — 26,100 $2,949,589 $ 774,323 $291,520 $4,015,432

The plan assets measured at fair value in Level 1 are based on quoted market prices in an active exchange market. Plan assets measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. Plan assets measured at fair value in Level 3 are based on unobservable inputs to pricing models, which includes SBERA’s assumptions and the best information available under the circumstances.

25 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a reconciliation of hedge fund investments, which are measured in Level 3, for which significant unobservable inputs were used to determine fair value:

Balance at October 31, 2011 $247,135 Unrealized appreciation 44,385 Balance at October 31, 2012 291,520 Purchases 11,719 Unrealized appreciation 1,557 Balance at October 31, 2013 $304,796

The benefits expected to be paid for each of the following five fiscal years and the aggregate for the five fiscal years thereafter are as follows: Year Ending October 31, Amount 2014 $899,458 2015 324,426 2016 305,113 2017 119,259 2018 81,434 2019-2023 860,709

The DIF plans to make a contribution to the plan during the year ending October 31, 2014 in the amount of approximately $150,000. SBERA offers a common and collective trust as the underlying investment structure for pension plans participating in the Association. The target allocation mix for the common and collective trust portfolio calls for an equity-based investment deployment range from 40% to 64% of total portfolio assets. The remainder of the portfolio is allocated to fixed income from 15% to 25% and other investments including global asset allocation and hedge funds from 20% to 36%. The approximate investment allocation of the portfolio is shown in the table below. The Trustees of SBERA, through the Association’s Investment Committee, select investment managers for the common and collective trust portfolio. A professional investment advisory firm is retained by the Investment Committee to provide allocation analysis, performance measurement and assistance with manager searches. The overall investment objective is to diversify equity investments across a spectrum of investment types (e.g., small cap, large cap, international, etc.) and styles (e.g., growth, value, etc.). The composition of pension assets as of October 31, 2013 and 2012 is as follows: 2013 2012 Fixed income (including money market) 19.8% 16.7% Equity investments 53.9 52.9 Other investments 26.3 30.4 Total 100.0% 100.0%

26 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Defined Contribution Pension Plan All employees of the DIF participate in a defined contribution pension plan offered and administered by SBERA. Employees become eligible to participate in the plan upon employment. Participating employees make contributions to the plan based on a percentage of their income. The DIF matches a percentage of the amounts contributed by employees. Employees become 100% vested in the DIF’s matching contributions immediately. For fiscal 2013 and 2012, the DIF’s matching contribution expense for the defined contribution pension plan was $51,512 and $50,168, respectively.

6. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS In the normal course of business, there are outstanding commitments and contingencies which are not reflected in the Fund’s consolidated financial statements, as follows.

Employment Agreement The DIF has entered into an employment agreement with its President and Chief Executive Officer that generally provides for a specified minimum annual compensation. Employment may be terminated for cause, as defined, without incurring any continuing obligations. The agreement has a continual expiration date of one year.

Severance Program The DIF has a Severance Program that covers substantially all employees of the DIF. The program provides salary and benefits to employees in the event of “triggering events” related to a liquidation, mandated downsizing, change of control, merger, or reorganization of the DIF. Benefit amounts are dependent upon years of service and salary grade levels, with a maximum benefit of one year’s salary and qualifying benefits.

Operating Lease Agreements The DIF has a lease providing for the use of its office space. The lease is cancelable by the DIF or the lessor. Total rent expense amounted to $72,504 for fiscal 2013 and 2012.

Legal Claims Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Fund’s consolidated financial statements.

7. RELATED PARTY TRANSACTIONS A majority of the DIF’s fifteen directors are associated with member banks.

8. FAIR VALUE OF ASSETS AND LIABILITIES Determination of Fair Value The Fund uses fair value measurements to record fair value adjustments to certain assets. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Fund’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. All fair value measurements are obtained from a third-party pricing service and are not adjusted by management.

27 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis Assets measured at fair value on a recurring basis at October 31, 2013 and 2012 are summarized below. There were no liabilities measured at fair value on a recurring basis at October 31, 2013 or 2012.

2013 Level 1 Level 2 Level 3 Total Fair Value Securities available for sale: U.S. Treasury obligations and guarantees $119,870,230 $ 17,624,841 $ — $137,495,071 U.S. government-sponsored enterprise obligations — 160,450,345 — 160,450,345 Mortgage- and asset-backed securities — 60,296,396 —- 60,296,396 Total $119,870,230 $238,371,582 $ — $358,241,812

2012 Trading securities $ — $ 1,456,851 $ — $ 1,456,851 Securities available for sale: U.S. Treasury obligations and guarantees 110,823,461 27,184,626 1,682,652 139,690,739 U.S. government-sponsored enterprise obligations — 180,085,852 — 180,085,852 Mortgage- and asset-backed securities — 49,517,098 — 49,517,098 Total $110,823,461 $258,244,427 $1,682,652 $370,750,540

The table below presents, for fiscal 2013 and 2012, the changes in Level 3 assets that are measured at fair value on a recurring basis. Assets Securities Available for Sale

Balance as of October 31, 2011 $1,293,635 Sales (1,293,635) Purchases 1,682,652

Balance as of October 31, 2012 1,682,652 Unrealized losses (636,128) Sales (1,046,524)

Balance as of October 31, 2013 $ —

28 DEPOSIT INSURANCE FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis There were no assets or liabilities measured at fair value on a non-recurring basis at October 31, 2013 or 2012.

9. SUBSEQUENT EVENTS Management has evaluated subsequent events through January 15, 2014, which is the date the financial statements were available to be issued. There were no subsequent events that required adjustment to or disclosure in the consolidated financial statements.

29 LIQUIDITY FUND INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of the Depositors Insurance Fund:

Report on the Financial Statements We have audited the accompanying financial statements of the Liquidity Fund, which comprise the statements of condition as of October 31, 2013 and 2012, and the related statements of comprehensive loss, changes in fund balance and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Liquidity Fund as of October 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Boston, Massachusetts January 15, 2014

30 LIQUIDITY FUND STATEMENTS OF CONDITION

October 31, 2013 and 2012 2013 2012 Assets Cash $ 60,232 $ 27,252 Securities available for sale, at fair value 6,319,319 6,379,056 Federal Home Loan Bank stock 22,300 21,700 Accrued interest receivable 14,842 10,959 Total assets $6,416,693 $6,438,967

Fund Balance Undistributed fund balance $6,415,095 $6,436,860 Accumulated other comprehensive income 1,598 2,107 Total fund balance 6,416,693 6,438,967 Total liabilities and fund balance $6,416,693 $6,438,967

See accompanying notes to financial statements.

31 LIQUIDITY FUND STATEMENTS OF COMPREHENSIVE LOSS

Years Ended October 31, 2013 and 2012 2013 2012 Income: Interest and dividends on investments $ 18,363 $ 37,359

Expenses: Expenses allocated from the Deposit Insurance Fund 40,128 41,263 Net loss (21,765) (3,904)

Other comprehensive loss: Unrealized holding losses on securities available for sale arising during the period (509) (25,224)

Other comprehensive loss (509) (25,224)

Comprehensive loss $(22,274) $(29,128)

See accompanying notes to financial statements.

32 LIQUIDITY FUND STATEMENTS OF CHANGES IN FUND BALANCE

Years Ended October 31, 2013 and 2012 Accumulated Other Undistributed Comprehensive Total Fund Fund Balance Income Balance

Fund balance at October 31, 2011 $6,440,764 $27,331 $6,468,095 Comprehensive loss (3,904) (25,224) (29,128)

Fund balance at October 31, 2012 6,436,860 2,107 6,438,967 Comprehensive loss (21,765) (509) (22,274)

Fund balance at October 31, 2013 $6,415,095 $ 1,598 $6,416,693

See accompanying notes to financial statements.

33 LIQUIDITY FUND STATEMENTS OF CASH FLOWS

Years Ended October 31, 2013 and 2012 2013 2012 Cash flows from operating activities: Net loss $ (21,765) $ (3,904) Adjustments to reconcile net loss to net cash provided by operating activities: Net amortization of securities 71,003 60,135 (Increase) decrease in accrued interest receivable (3,883) 21,934 Net cash provided by operating activities 45,355 78,165

Cash flows from investing activities: Maturities of securities available for sale 3,424,000 3,773,000 Purchases of securities available for sale (3,435,775) (4,001,531) (Purchase) redemption of Federal Home Loan Bank stock (600) 300 Net cash used by investing activities (12,375) (228,231) Net change in cash 32,980 (150,066)

Cash at beginning of year 27,252 177,318

Cash at end of year $ 60,232 $ 27,252

See accompanying notes to financial statements.

34 LIQUIDITY FUND NOTES TO FINANCIAL STATEMENTS

Years Ended October 31, 2013 and 2012

1. DESCRIPTION OF BUSINESS

Depositors Insurance Fund The Depositors Insurance Fund (the “DIF”), which did business under the name Mutual Savings Central Fund, Inc. until February 1993, was established by the Massachusetts Legislature in 1932 and is now comprised of the Liquidity Fund and the Deposit Insurance Fund and its subsidiary. The two funds may not be commingled and the assets of one do not stand behind the liabilities of the other. The Liquidity Fund and the Deposit Insurance Fund share office space and personnel. Costs incurred are generally paid by the Deposit Insurance Fund and allocated to the Liquidity Fund. The DIF is an organization described under Section 501(c)(14) of the Internal Revenue Code (the “Code”) and is exempt from taxes on related income under Section 501(a) of the Code.

Liquidity Fund The Liquidity Fund (the “Fund”) was established in 1932 for the purpose of providing temporary liquidity to member banks by making loans to them secured by assets of the borrowing banks.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates Income and expenses of the Fund are recognized on the accrual method of accounting. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents For purposes of the statements of cash flows, the Fund considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

Fair Value Hierarchy The Fund groups its assets that are measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. Level 1 – Valuation is based on quoted prices in active markets for identical assets. Level 1 assets generally include debt securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets. Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets. Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

35 LIQUIDITY FUND NOTES TO FINANCIAL STATEMENTS

Securities Available for Sale All securities are classified as “available for sale” and carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Premiums and discounts are recognized in income by a method that approximates the interest method over the terms of the securities. The cost of securities sold is determined on a specific-identification basis. Each reporting period, the Fund evaluates all securities classified as available for sale with a fair value below amortized cost to determine whether or not the impairment is deemed to be other than temporary (“OTTI”). OTTI is required to be recognized if (1) the Fund intends to sell the security; (2) it is more likely than not that the Fund will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For impaired debt securities that the Fund intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income.

Federal Home Loan Bank Stock Federal Home Loan Bank stock is a restricted equity security and is carried at cost.

Dividends The Fund may pay discretionary dividends on a quarterly or semi-annual basis which are accrued by a charge to the undistributed fund balance when approved by the DIF Board of Directors.

Comprehensive Income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the fund balance section of the statement of condition, such items, along with net income, are components of comprehensive income.

Expense Allocation The Fund shares office space and personnel with the Deposit Insurance Fund, and 2% of the Deposit Insurance Fund’s expenses, excluding those expenses directly related only to the Deposit Insurance Fund, are allocated to the Liquidity Fund.

Recent Accounting Pronouncements In fiscal 2013, the Fund adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which clarifies and expands the disclosures pertaining to unobservable inputs used in Level 3 fair value measurements, including the disclosure of quantitative information related to (1) the valuation processes used, (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, and (3) use of a nonfinancial asset in a way that differs from the asset’s highest and best use. The adoption of this guidance did not have a material impact on the Fund’s financial statements. In fiscal 2013, the Fund adopted FASB ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which amends the disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in surplus. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. See the Statements of Comprehensive Loss presented herein.

36 LIQUIDITY FUND NOTES TO FINANCIAL STATEMENTS

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220), Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The amendments are effective prospectively for the year ending October 31, 2015, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Fund’s financial statements.

3. INVESTMENTS Securities Available for Sale The amortized cost, fair value, and unrealized gains and losses of securities classified as available for sale at October 31, 2013 and 2012, by contractual maturity, are as follows: Amortized Unrealized Unrealized Fair 2013 Cost Gains Losses Value U.S. Treasury obligations: Due in one year or less $3,033,409 $ 1,217 $ — $3,034,626 Due after one year through five years 1,048,633 — (443) 1,048,190 4,082,042 1,217 (443) 4,082,816

U.S. government-sponsored enterprise obligations: Due in one year or less 985,215 563 — 985,778 Due after one year through five years 1,250,464 526 (265) 1,250,725 2,235,679 1,089 (265) 2,236,503 Total securities available for sale $6,317,721 $ 2,306 $ (708) $6,319,319

2012 U.S. Treasury obligations: Due in one year or less $2,163,002 $ 2,168 $ (531) $2,164,639 Due after one year through five years 1,956,330 — (2,257) 1,954,073 4,119,332 2,168 (2,788) 4,118,712

U.S. government-sponsored enterprise obligations: Due in one year or less 1,271,717 2,612 — 1,274,329 Due after one year through five years 985,900 115 — 986,015 2,257,617 2,727 — 2,260,344 Total securities available for sale $6,376,949 $ 4,895 $(2,788) $6,379,056

There were no sales of securities during the years ended October 31, 2013 or 2012.

37 LIQUIDITY FUND NOTES TO FINANCIAL STATEMENTS

Gross unrealized losses on securities available for sale and the fair values of the related securities aggregated by category and length of time that individual securities have been in a continuous unrealized loss position at October 31, 2013 and 2012 follow: Less Than Twelve Months Over Twelve Months Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses 2013 U.S. Treasury obligations $1,048,190 $ (443) $ — $ — $1,048,190 $ (443) U.S. government-sponsored enterprise obligations 386,305 (265) — — 386,305 (265) $1,434,495 $ (708) $ — $ — $1,434,495 $ (708) 2012 U.S. Treasury obligations $3,005,936 $ (2,788) $ — $ — $3,005,936 $ (2,788)

At October 31, 2013, debt securities with unrealized losses have aggregate depreciation of less than 1% of their amortized cost, reflective of interest rate changes. The principal and accrued interest on all of the securities are guaranteed by the U.S. Government, an agency of the U.S. Government, or both. Because the Fund does not intend to sell the securities and it is unlikely that it will be required to sell the securities before recovery of their amortized cost bases (which may be at maturity), management does not consider these securities to be other-than-temporarily impaired at October 31, 2013.

Federal Home Loan Bank Stock The DIF is a member of the Federal Home Loan Bank of Boston (“FHLBB”). As a condition of membership, the DIF is required to maintain an investment in FHLBB stock based on the DIF’s holdings of U.S. Treasury and government- sponsored enterprise obligations. Additional stock purchases are required based on growth of the DIF’s holdings of U.S. Treasury and government-sponsored enterprise obligations and/or usage of FHLBB advances and related services. The DIF reviews its investment for impairment based on the ultimate recoverability of the cost basis in the FHLBB stock. As of October 31, 2013, no impairment has been recognized. At October 31, 2013, the DIF’s investment in FHLBB stock was $1,099,100, of which $22,300 was allocated to the Fund. The amount allocated to the Fund represents the Fund’s required FHLBB stock based on its holdings of U.S. Treasury and government-sponsored enterprise obligations and its use of FHLBB services; all FHLBB stock held in excess of required stock is allocated to the Deposit Insurance Fund. The DIF also has a master agreement with the FHLBB regarding advances, which are secured by the DIF’s FHLBB stock and specifically pledged securities. As of October 31, 2013 and 2012, the DIF had no outstanding advances from the FHLBB and, accordingly, no securities have been specifically-pledged. FHLBB advances would be allocated to the Fund and the Deposit Insurance Fund based on the portion of advances applicable to each fund.

4. RELATED PARTY TRANSACTIONS A majority of the DIF’s fifteen directors are associated with member banks.

38 LIQUIDITY FUND NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

5. FAIR VALUE OF ASSETS AND LIABILITIES Determination of Fair Value The Fund uses fair value measurements to record fair value adjustments to certain assets. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Fund’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. All fair value measurements are obtained from a third-party pricing service and are not adjusted by management.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Assets measured at fair value on a recurring basis at October 31, 2013 and 2012 are summarized below. There were no liabilities measured at fair value on a recurring basis at October 31, 2013 or 2012.

2013 Level 1 Level 2 Level 3 Total Fair Value Securities available for sale: U.S. Treasury obligations $4,082,816 $ — $ — $4,082,816 U.S. government-sponsored enterprise obligations — 2,236,503 — 2,236,503

$4,082,816 $2,236,503 $ — $6,319,319

2012 Securities available for sale: U.S. Treasury obligations $4,118,712 $ — $ — $4,118,712 U.S. government-sponsored enterprise obligations — 2,260,344 — 2,260,344

$4,118,712 $2,260,344 $ — $6,379,056

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis There were no assets or liabilities measured at fair value on a non-recurring basis at October 31, 2013 or 2012.

6. SUBSEQUENT EVENTS Management has evaluated subsequent events through January 15, 2014, which is the date the financial statements were available to be issued. There were no subsequent events that required adjustment or disclosure in the financial statements.

39 NOTES

40

CARITAS COMMUNITIES/BEDFORD VETERANS QUARTERS • THE CENTER FOR ARTS IN NATICK • THE DEDHAM COMMUNITY ASSOCIATION • NORFOLK ADULT DAY HEALTH CENTER HOME HEALTH VNA • THE UNITED WAY OF MASS BAY & MERRIMACK VALLEY • THE BOYS & GIRLS CLUB OF GREATER HAVERHILL • RIVER EAST SCHOOL TO CAREERS MONSON ARTS COUNCIL • WARE FIRE DEPT 9-11 MEMORIAL • FOUNDATION FOR BELMONT EDUCATION • CAMBRIDGE HOUSING ASSISTANCE FUND • MARLBOROUGH HOSPITAL SOMERVILLE HOMELESS COALITION • WEST SPRINGFIELD PUBLIC LIBRARY • HOLYOKE CATHOLIC HIGH SCHOOL • SPRINGFIELD TECHNICAL COMMUNITY COLLEGE BOYS & GIRLS CLUB OF METROWEST • EMPLOYMENT OPTIONS • D’YOUVILLE LIFE & WELLNESS • LOWELL GENERAL HOSPITAL/CIRCLE HEALTH • MERRIMACK VALLEY RIVER HOUSE GREENFIELD COMMUNITY COLLEGE • NORTHAMPTON PRIDE • FRANKLIN COUNTY HOME CARE CORPORATION • BOYS AND GIRLS CLUB OF SALEM • PLUMMER HOME PEABODY ESSEX MUSEUM • CANTON FOOD PANTRY • NEW ENGLAND CENTER FOR HOMELESS VETERANS • QUINCY COMMUNITY ACTION PROGRAM • CAMP PUTNAM VOLUNTEERS IN MEDICINE BERKSHIRES • LEE EDUCATIONAL ENRICHMENT FUND • COMMUNITY ACCESS TO THE ARTS • INDIAN HILL MUSIC & ARTS • CARDINAL CUSHING CENTERS LOAVES & FISHES FOOD PANTRY • AYER-SHIRLEY EDUCATION FOUNDATION • WEYMOUTH FOOD PANTRY • SOUTH SHORE HABITAT FOR HUMANITY • GIRLS INC. QUNSIGAMOND COMMUNITY COLLEGE • NORTH BROOKFIELD YOUTH CENTER • BELIKEBRIT • LITERACY VOLUNTEERS OF GREATER WORCESTER • MARLBOROUGH HOSPITAL HUDSON & MAYNARD ADULT LEARNING CENTER • YMCA OF CENTRAL MASS • ANNA JAQUES HOSPITAL • NEWBURYPORT EDUCATION FOUNDATION • OUR NEIGHBOR’S TABLE MILLBURY BICENTENNIAL • FRIENDS OF THE MILLBURY SENIORS’ MEALS ON WHEELS • MILLBURY DOLLARS FOR SCHOLARS • CIRCLE HEALTH AT LOWELL GENERAL HOSPITAL MERRIMACK REPERTORY THEATRE • MERRIMACK VALLEY HOSPICE HOUSE • WELLSPRING • PATHWAYS FOR CHILDREN • ROCKPORT EDUCATIONAL FOUNDATION PIONEER VALLEY HABITAT FOR HUMANITY • DAIKEN HUMANE SOCIETY • NORTHAMPTON SURVIVAL CENTER • ATHOL AREA YMCA • HOUSE OF PEACE & EDUCATION GREATER GARDNER CHAMBER OF COMMERCE • UNITED WAY OF MASSACHUSETTS BAY AND MERRIMACK VALLEY • CIRCLE HEALTH – LOWELL GENERAL HOSPITAL BOYS AND GIRLS CLUB OF GREATER LOWELL • NORTHERN BERKSHIRE UNITED WAY • WILLIAMSTOWN YOUTH CENTER • ADAMS YOUTH CENTER • CAPE ANN MUSEUM GLOUCESTER EDUCATION FOUNDATION • CAPE ANN SYMPHONY • FALL RIVER CHILDREN’S MUSEUM • YMCA SOUTHCOAST • HEALTHFIRST FAMILY CARE CENTER NORTH ADAMS STEEPLECATS • MASSACHUSETTS COLLEGE OF LIBERAL ARTS • WILLIAMSTOWN YOUTH CENTER • HOUSING CORPORATION OF ARLINGTON COUNCIL OF SOCIAL CONCERN • CAPE COD HEALTHCARE • WINCHESTER ABC PROGRAM • CAPE COD COMMUNITY COLLEGE • ARTS FOUNDATION OF CAPE COD THE FAMILY PANTRY OF CAPE COD • BOLTON 5K RALLY • CLINTON HOSPITAL FOUNDATION • GROWING PLACES GARDEN PROJECT • UNITED WAY OF WEBSTER DUDLEY WORCESTER CENTER FOR PERFORMING ARTS • NICHOLS COLLEGE • UNITED WAY OF PIONEER VALLEY • SOUTH HADLEY PUBLIC LIBRARY • WORCESTER COUNTY FOOD BANK CHICOPEE SENIOR CENTER • HARRINGTON MEMORIAL HOSPITAL - SOUTHBRIDGE • OLD STURBRIDGE VILLAGE • MERRIMACK VALLEY HOSPICE • MERRIMAC LIBRARY MERRIMAC COUNCIL ON AGING • TOWN OF BRIDGEWATER - HOUSING PARTNERSHIP • EAST BRIDGEWATER MUSIC PARENTS • OLD COLONY YMCA • FRIENDS OF SOUTH SHORE HOSPITAL • ATLANTIC SYMPHONY ORCHESTRA • GLASTONBURY ABBEY • WESTPORT HISTORICAL SOCIETY • COMMUNITY FOUNDATION OF SOUTHEASTERN MASS DARTMOUTH YMCA • MOTHER BROOK ARTS AND COMMUNITY CENTER • SOUTH SHORE YMCA • FREEDOM HOUSE • BOYS & GIRLS CLUB OF METROWEST • HALE RESERVATION CARITAS COMMUNITIES/BEDFORD VETERANS QUARTERS • THE CENTER FOR ARTS IN NATICK • THE DEDHAM COMMUNITY ASSOCIATION • NORFOLK ADULT DAY HEALTH CENTER HOME HEALTH VNA • THE UNITED WAY OF MASS BAY & MERRIMACK VALLEY • THE BOYS & GIRLS CLUB OF GREATER HAVERHILL • RIVER EAST SCHOOL TO CAREERS MONSON ARTS COUNCIL • WARE FIRE DEPT 9-11 MEMORIAL • FOUNDATION FOR BELMONT EDUCATION • CAMBRIDGE HOUSING ASSISTANCE FUND • MARLBOROUGH HOSPITAL SOMERVILLE HOMELESS COALITION • WEST SPRINGFIELD PUBLIC LIBRARY • HOLYOKE CATHOLIC HIGH SCHOOL • SPRINGFIELD TECHNICAL COMMUNITY COLLEGE BOYS & GIRLS CLUB OF METROWEST • EMPLOYMENT OPTIONS • D’YOUVILLE LIFE & WELLNESS • LOWELL GENERAL HOSPITAL/CIRCLE HEALTH • MERRIMACK VALLEY RIVER HOUSE GREENFIELD COMMUNITY COLLEGE • NORTHAMPTON PRIDE • FRANKLIN COUNTY HOME CARE CORPORATION • BOYS AND GIRLS CLUB OF SALEM • PLUMMER HOME PEABODY ESSEX MUSEUM • CANTON FOOD PANTRY • NEW ENGLAND CENTER FOR HOMELESS VETERANS • QUINCY COMMUNITY ACTION PROGRAM • CAMP PUTNAM VOLUNTEERS IN MEDICINE BERKSHIRES • LEE EDUCATIONAL ENRICHMENT FUND • COMMUNITY ACCESS TO THE ARTS • INDIAN HILL MUSIC & ARTS • CARDINAL CUSHING CENTERS LOAVES & FISHES FOOD PANTRY • AYER-SHIRLEY EDUCATION FOUNDATION • WEYMOUTH FOOD PANTRY • SOUTH SHORE HABITAT FOR HUMANITY • GIRLS INC. QUNSIGAMOND COMMUNITY COLLEGE • NORTH BROOKFIELD YOUTH CENTER • BELIKEBRIT • LITERACY VOLUNTEERS OF GREATER WORCESTER • MARLBOROUGH HOSPITAL HUDSON & MAYNARD ADULT LEARNING CENTER • YMCA OF CENTRAL MASS • ANNA JAQUES HOSPITAL • NEWBURYPORT EDUCATION FOUNDATION • OUR NEIGHBOR’S TABLE MILLBURY BICENTENNIAL • FRIENDS OF THE MILLBURY SENIORS’ MEALS ON WHEELS • MILLBURY DOLLARS FOR SCHOLARS • CIRCLE HEALTH AT LOWELL GENERAL HOSPITAL MERRIMACK REPERTORY THEATRE • MERRIMACK VALLEY HOSPICE HOUSE • WELLSPRING • PATHWAYS FOR CHILDREN • ROCKPORT EDUCATIONAL FOUNDATION PIONEER VALLEY HABITAT FOR HUMANITY • DAIKEN HUMANE SOCIETY • NORTHAMPTON SURVIVAL CENTER • ATHOL AREA YMCA • HOUSE OF PEACE & EDUCATION GREATER GARDNER CHAMBER OF COMMERCE • UNITED WAY OF MASSACHUSETTS BAY AND MERRIMACK VALLEY • CIRCLE HEALTH – LOWELL GENERAL HOSPITAL BOYS AND GIRLS CLUB OF GREATER LOWELL • NORTHERN BERKSHIRE UNITED WAY • WILLIAMSTOWN YOUTH CENTER • ADAMS YOUTH CENTER • CAPE ANN MUSEUM GLOUCESTER EDUCATION FOUNDATION • CAPE ANN SYMPHONY • FALL RIVER CHILDREN’S MUSEUM • YMCA SOUTHCOAST • HEALTHFIRST FAMILY CARE CENTER NORTH ADAMS STEEPLECATS • MASSACHUSETTS COLLEGE OF LIBERAL ARTS • WILLIAMSTOWN YOUTH CENTER • HOUSING CORPORATION OF ARLINGTON COUNCIL OF SOCIAL CONCERN • CAPE COD HEALTHCARE • WINCHESTER ABC PROGRAM • CAPE COD COMMUNITY COLLEGE • ARTS FOUNDATION OF CAPE COD THE FAMILY PANTRY OF CAPE COD • BOLTON 5K RALLY • CLINTON HOSPITAL FOUNDATION • GROWING PLACES GARDEN PROJECT • UNITED WAY OF WEBSTER DUDLEY WORCESTER CENTER FOR PERFORMING ARTS • NICHOLS COLLEGE • UNITED WAY OF PIONEER VALLEY • SOUTH HADLEY PUBLIC LIBRARY • WORCESTER COUNTY FOOD BANK CHICOPEE SENIOR CENTER • HARRINGTON MEMORIAL HOSPITAL - SOUTHBRIDGE • OLD STURBRIDGE VILLAGE • MERRIMACK VALLEY HOSPICE • MERRIMAC LIBRARY MERRIMAC COUNCIL ON AGING • TOWN OF BRIDGEWATER - HOUSING PARTNERSHIP • EAST BRIDGEWATER MUSIC PARENTS • OLD COLONY YMCA • FRIENDS OF SOUTH SHORE HOSPITAL • ATLANTIC SYMPHONY ORCHESTRA • GLASTONBURY ABBEY • WESTPORT HISTORICAL SOCIETY • COMMUNITY FOUNDATION OF SOUTHEASTERN MASS DARTMOUTH YMCA • MOTHER BROOK ARTS AND COMMUNITY CENTER • SOUTH SHORE YMCA • FREEDOM HOUSE • BOYS & GIRLS CLUB OF METROWEST • HALE RESERVATION

One Linscott Road, Woburn, MA 01801-2000 • (781) 938-1984 • (800) 295-3500 • www.difxs.com